Lululemon Digital Transformation Drives Earnings Beat

Lululemon Athletica Inc. (ticker: LULU) surged 13 percent higher on Friday, a day after the company reported strong first-quarter earnings and announced that it expects to continue its business momentum throughout the remainder of the year.

Lululemon stock jumped after the company reported first-quarter adjusted earnings of 32 cents per share on revenue of $520.3 million. Wall Street analysts were expecting EPS of 27 cents on revenue of $514.1 million.

In addition to the strong first-quarter numbers, Lululemon updated second-quarter and full-year 2017 guidance as well. The company expects second-quarter adjusted EPS of 33 to 35 cents on revenue of $565 million to $570 million. For the full fiscal year, Lululemon projects adjusted EPS of $2.28 to $2.38 on revenue of $2.53 billion to $2.58 billion.

Lululemon also announced it will be continuing its focus on digital sales by closing nearly all of its 55 underperforming Ivivva girls stores and upping its investment in its online business.

“Our current outlook for the remainder of the year is strong, and I’m energized by the growth strategies taking shape,” CEO Laurent Potdevin says. “We’ve doubled down on our digital strategy.”

While the market certainly seemed to approve of Lululemon’s quarter, the company also is winning over Wall Street analysts.

“Even when LULU has a product misstep, over and over again, powerful brand equity brings the consumer back quickly,” Oppenheimer analyst Anna Andreeva says in a note Friday. While the company is not insulated from the general weakness in the U.S. retail sector, Lululemon’s potential for square footage growth and operating margins in the low 20 percent range makes it a compelling turnaround play for investors, Andreeva says.

D.A. Davidson maintains…

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